Strategies Developers/Investors use to reduce Tax

Discussion in 'Accounting & Tax' started by MTR, 18th May, 2016.

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  1. sanj

    sanj Well-Known Member Premium Member

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    are you comfortable with all your personal assets being at risk when undertaking this venture and with you almost certainly paying 49 odd % tax in the end assuming decent profits?
     
  2. sanj

    sanj Well-Known Member Premium Member

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    there is no CGT payable for developers, CGT is for investments not when youre undertaking a business/enterprise.

    are you sure the advice was that timing of the event is based on settlement and not contract of sale? im happy to be corrected here by @Paul@PFI or @Terry_w but i dont believe this to be the case.
     
  3. MTR

    MTR Well-Known Member

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    spoke to my accountant this morning and he has all my contracts when signed and also thought same as you, and he advised as a developer CGT is worked out on settlement date. We however are paying CGT quarterly.
     
  4. MRO

    MRO Well-Known Member

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    Mtr is correct. Developers record income on settlement.
     
  5. sanj

    sanj Well-Known Member Premium Member

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    pretty risky move if youre claiming this to be a capital exercise and not income but i suppose many people do it and get away with it. hard to defend if ATO calls up though since it appears to be an entirely profit making venture where the whole intention was to buy, develop and sell for profit. in that case there is no capital gain here but revenue so no CGT payable, income tax instead.
     
  6. sanj

    sanj Well-Known Member Premium Member

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    but it's being claimed as capital gains not income, thats my confusion. in that case it has to go according to contract date i believe
     
  7. MRO

    MRO Well-Known Member

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    Not happy about it but the only way i was able to finance it at the time.

    I am considering holding and building IP's on several of the lots and timing the sale of the other lots to help minimise tax.
     
  8. MRO

    MRO Well-Known Member

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    CGT event normally occurs upon unconditional contract date. The wording is confusing the question i think.
     
  9. MTR

    MTR Well-Known Member

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    I also know some investors/developers as a one off/first development will buy in own name, then another development in partners name.

    I have not done this, investors have to consider what the worst case scenario is??

    MTR:)
     
  10. MTR

    MTR Well-Known Member

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    so why not set up a project management company? this is what we have done
     
  11. MTR

    MTR Well-Known Member

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    Trust are used as asset protection, however as Directors we are still liable ie personal guarantees banks etc

    I know they have a place and you can set up several trusts in part to assist with protecting assets and minimise tax etc. but they are not bullet proof.
     
  12. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Company wont safeguard a income splitting or quarantine arrangement. It could be construed to be personal services income as an example - PSI rules "ignore" the company at times.
     
  13. MRO

    MRO Well-Known Member

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    I suppose that is my question, is it acceptable for my wife in her own name or through another entity to charge me for project management fees?
     
  14. MTR

    MTR Well-Known Member

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    I can only comment on what my accountant has recommended and that was to set up a company who charges project management fees.

    I think its pretty important to get the structure right from the start it could make a massive difference to your bottom line.

    I know we have made huge savings from advice received from our accountant. I suggest you get some professional advice. Forum can only help so much, your scenario and what you are trying to achieve could be way off from what I am doing.

    MTR:)
     
  15. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I think you are confusing things here. Trust assets won't be available to creditors other than creditors of that trust. So the idea is to hold assets in trusts that are not doing a development. These won't be exposes unless the trustee gives a guarantee.

    personal assets can be protected by limiting guarantees to 1 spouse and some other methods.
     
  16. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    The management company won't really help with tax savings if at the end of the day it all comes back to you. but if you personally own the land then it can help.

    It can help with asset protection too by diverting assets from a high risk entity to a low risk one.
     
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  17. MTR

    MTR Well-Known Member

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    thanks
    Still confused, not unusual, most developers will source finance and personal guarantees are required so banks can still go for the Trust??
     
  18. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Think of it this way. Your parents own a property. You do a development, in a trust and give a personal guarantee. If the development fails the trust can lose its assets and you can lose your assets, but your parents have nothing to do with this and won't be touched.

    Now replace the word 'parents' with "Trust 2".
     
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  19. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Assume no until you receive personal advice. Alienation of income is covered by a range of tax laws and also Part IVA.
     
  20. MTR

    MTR Well-Known Member

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    Here are some more tips for those interested, some already mentioned.

    2015/2016


    INTEREST PREPAYMENTS Investors are limited in the types of expenditure that can be prepaid. Interest is, however, one expense that should be considered as it has the effect of accelerating a deduction from a subsequent year to a current year. Similarly, prepayment of finance lease payments of 12 months in advance could assist with your end of year tax planning process. If you have rental properties as a part of your tax effective planning, then you could consider the prepayment of up to 12 months interest on your loans. Please ensure that you seek advice from your financial institution on their ability to do this.

    MOTOR VEHICLE CLAIMS Ensure that you have all relevant documentation to maximise your income tax deduction when claiming your business related motor vehicle use. This may include ensuring that a relevant and up-to-date logbook is being maintained. Although the same log book can be used for up to five years, it is always worth reviewing to see if travel patterns have changed. For the 2016 financial year, a motor vehicle may be claimed in any one of four (4) methods;  Log Book Method  Cents per Kilometer Method
    Please note that recent Federal budget announcements have confirmed that the 1/3 of Running Costs Method and the 12% of Cost method are no longer be available in the 2016 financial year and in future financial years.

    SUPERANNUATION CONTRIBUTIONS
    A great way of reducing your annual income tax liability and build your future wealth is to contribute to your superannuation fund. Self employed business operators are able to claim an income tax deduction for 100% of their contributions to superannuation, limited to $30,000 for individuals under the age of 50 and $35,000 for individuals aged 50 or over. There are some transitional rules that may allow you to contribute more to superannuation, please seek advice from your accountant and financial planner relating to these rules.

    GOVERNMENT CO-CONTRIBUTIONS
    All employees and self employed persons with a net income of less than $50,454 are able to contribute to their superannuation fund a maximum undeducted amount of $500 to apply for the government cocontribution. The government will pay $0.50 for ever dollar contributed in this manner. There is a reduction of the amount the government contributes of 3.33c for every dollar of taxable income over $35,454.

    DELAY SALE OF CAPITAL ASSETS
    The sale of capital assets (property, shares, business’s etc) occurs from the date of a signed offer and acceptance form. If you feel that an asset to be sold has a capital gain component, then it is prudent to analyse whether it be better to hold off on the asset sale until after 30 June. On the other hand, if you have already incurred capital gains during the year, and you hold assets that are currently in a loss position, then it may be worth analysing whether it be better to sell these assets to offset against any current capital gains. A review of your share portfolio for underperforming share stocks is recommended.

    SALARY SACRIFICING INCOME TO SUPERANNUATION
    For those who are wage and salary earners, a popular way to reduce your taxable income in a financial year would be to salary sacrifice some of your remaining pays for the financial year to superannuation. This will have the effect of reducing tax payable at high marginal levels to 15% in a complying superannuation fund. Please ensure that you DO NOT exceed your age based superannuation contribution cap.
    REPAIRS & MAINTENANCE If you own rental properties and they are available for rent, it may be wise to review the status and condition of the properties and arrange for any repairs and maintenance issues to be commenced and/or completed in this financial year. Other items such as pest control, gardening expenses and gutter cleaning are also to be considered.

    PAYMENT OF EXPENSES The general “rule of thumb” is that an expense is not deductible until it is actually paid. Based on this individuals and business’s should ensure that all of their expenses (which they wish to claim) are paid and deducted from their bank accounts prior to the 30 June. These may include;  Employee Superannuation  Accounting and Professional Fees  General operating expenses  Lease payments  Subscriptions  Trade Accounts  etc……

    DELAY OF INCOME RECEIPTS It may be prudent to delay the receipt of income from investments such as joint ventures and rental properties so that it falls into the following year, where your taxable income levels may be less.